U.S. District Court Judge Paul A. Magnuson noted that a number of federal circuits ruled that former participants have standing if their account values would have been greater if not for the breach following the U.S. Supreme Court’s decision in LaRue v. DeWolff (see Justices OK Individual ERISA Suits in Landmark Ruling ). However, Magnuson said his court was not governed by decisions of other circuits, but only by the 8 th Circuit which ruled in a 1995 case that cashed-out former participants do not have standing to pursue ERISA claims.
Magnuson said he was not convinced that the footnote in the Supreme Court’s decision means all former participants have standing to bring ERISA fiduciary breach claims. The footnote pointed out that LaRue had taken a distribution of his account after a writ of certiorari was granted, but that did not make his case moot because he may still have a “colorable claim for benefits.”
“The LaRue Court was considering whether the former participant’s claims were mooted by his decision to withdraw all of the money in his plan account during the pendency of the appeal, not whether such a person would have standing to bring claims initially,” Magnuson wrote.
Though the former employee did not have standing according to the court, a co-plaintiff who currently works for Wells Fargo and is an active participant in the retirement plan does have standing, so the court still considered Wells Fargo’s motion to dismiss the fiduciary breach and self-dealing claims.
The district court ruled that current Wells Fargo 401(k) participant Robin Figas can move forward on her claims that impermissibly invested in mutual funds managed by Wells Fargo affiliate Wells Fargo Fund Management (WFFM).
Magnuson rejected Wells Fargo's argument that to effectively state a claim under ERISA's prohibited transaction rule, the participant must also allege that Wells Fargo did not comply with the accompanying regulation to Â§ 406, known as PTE 77-3, 42 Fed. Reg. 18, 734 (1977), which exempts from the prohibited transaction rules of Â§ 406 any transaction in which the fiduciary does not:
- pay any fees to the investment adviser except via the investment company's payment of its standard advisory and other fees;
- pay a redemption fee to any party other than the investment company itself;
- pay a sales commission; and
- have dealings with the investment company on terms that are less favorable than between the investment company and any other shareholder.
Magnuson said even if Figas did have the burden of also alleging non-compliance with the accompanying regulation, she did so by claiming that Wells Fargo invested in a category of stock that generated higher fees for WFFM, rather than in the "institutional" category that charged lower management fees.
The court also rejected the motion to dismiss claims that Wells Fargo breached its fiduciary duties to plan participants, saying that Figas' allegation that Wells Fargo not only invested in funds with higher fees, but that the funds also had lower returns than other, cheaper funds, was a "plausible" fiduciary breach claim.
The case is Gipson v. Wells Fargo & Co.,D. Minn.,No. 08-4546 (PAM/FLN), 3/13/09.
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